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Few Understand That Social Security Is Already Means-Tested

Sunday, January 13, 2013 - 9:23 PM
From Scott Burns' column in the Dallas Morning News today:
“Yeah, I’ll bet they start means-testing Social Security soon. If you make a bunch of money, you won’t be able to collect any benefits.” 

Lots of people make such comments. Lots of other people listen seriously. “Means-testing” seems to be a quick solution for the inadequate funding of future Social Security benefits. What few understand is that Social Security is already means-tested. In fact, it is means-tested twice.  

Confused? Then come with me into the weedy details of Social Security.

It’s good to remember, right here, that Social Security is the single largest part of our social safety net. It provides about 39 percent of all income received by the elderly and more than 50 percent of all income for many. Without Social Security, we’d be in something worse than chaos.  

First, let’s look at how benefits are calculated. What most people don’t know is that our employment tax dollars don’t all buy the same amount of future benefit. Some of our employment tax dollars buy six times as much in benefits as others.

Read more

The article provides details about the tiered calculations used to determine SS benefits. 

You will likely have to access the article through Google News. 
pearlbrownpearlbrown1,491 posts since
Nov 2, 2010
Rep Points: 6,490
1. Sunday, January 13, 2013 - 9:40 PM
Computing the the primary insurance amount (PIA). The formula used to compute the PIA from average indexed monthly earnings (AIME) is weighted to provide a higher PIA-to-AIME ratio for workers with comparatively low earnings. The formula applies declining percentage conversion rates to three AIME brackets. For workers who reach age 62, become disabled, or die in 2012, the formula provides a PIA equal to the sum of

90 percent of the first $767 of AIME, plus
32 percent of the next $3,857 of AIME, plus
15 percent of AIME over $4,624.

The PIA is increased by cost-of-living adjustments (COLAs) beginning with the first year of eligibility. The COLA for 2012 took effect in December 2011.

The dollar amounts defining the AIME brackets are referred to as bend points. These bend points are updated automatically each year in proportion to increases in the national average wage level. This automatic adjustment ensures that benefit levels for successive generations of eligible workers will keep up with rising earnings levels, thereby assuring consistent rates of earnings replacement from one generation of beneficiaries to the next.

Annual Statistical Supplement, 2012 - Social Security Program Description and Legislative History
ShorebreakShorebreak2,700 posts since
Apr 6, 2010
Rep Points: 14,636
2. Sunday, January 13, 2013 - 10:15 PM
Yes, there is means-testing for social security benefits, which favors low income workers, but that doesn't mean that very wealthy people need to get any SS benefits. Social Security will not survive for the next generation unless we reform it, and one way is to stop providing it for people who don't need it.
loulou554 posts since
Aug 3, 2010
Rep Points: 3,437
3. Monday, January 14, 2013 - 10:55 AM
As usual, I am rightfully confused.  One point that is so counter-intuitive is: The social system should be made mercifully and considerately simple as one gets older.  But all these ss/medicare/tax systems are making things a lot more complex than necessary to ensure early death of seniors by brain explosion.
51hh51hh1,476 posts since
Jan 16, 2010
Rep Points: 6,427
4. Monday, January 14, 2013 - 11:13 AM
We pay taxes on our Social Security every year.  Who is to decide who are the people who "don't need it"?  Just because someone has savings doesn't mean they are wealthy.  Maybe a lot of the savings go to help others and if they didn't have social security to back it up. they would deplete most of any savings.  Once again, the savers would be punished for doing the  right thing and trying not to be a dole on the government.  In our example, we are saving taxpayers (i.e. the government) from having to shell out thousands of dollars to help someone because we are helping  them instead.   Many savers need their social security, imo. 
paoli2paoli21,406 posts since
Aug 10, 2011
Rep Points: 6,152
5. Monday, January 14, 2013 - 11:41 AM
Does Warren Buffett or Bill Gates need SS?
loulou554 posts since
Aug 3, 2010
Rep Points: 3,437